You might have thought the recession that's hampered the U.S. economy for the last two years would have driven back the large European-owned third-party logistics (3PL) companies seeking to compete on American turf. Tough times,after all, tend to thin the ranks. But quite the opposite has happened, and the Dutch, German, Swiss and British logistics giants regard their U.S. business as not only key to their continued expansion, but as a crucial factor in transforming themselves into truly international service providers.
David Kulik, president and chief executive officer of TNT Logistics North America—formerly CTI Logistics, which was bought by Holland-based TNT Post Group (TPG) from CSX in 2000—says he's certainly changed his perspective in the last two years. "We were owned by a North American railroad and sold to TPG to become part of a global network. The change for us is symptomatic of what's going on in the entire industry," he says. "We had operations in Europe and South America that we were managing out of Jackson [Mississippi]. We were still mostly competing with the North American players, and the usual suspects were always bidding with us on contracts." Now, Kulik says, the logistics provider is part of a global company and is bidding against competitors such as Kuehne & Nagel and Deutsche Post.
Exel, now the largest pure 3PL in the world,places great importance on its U.S. operations as one of the centers of its international activities. "At Exel, we would not regard ourselves as a 'European 3PL,' given the strong historic roots of our business in the United States and how it has grown, largely organically, over the last 10 years," says John Dawson, director of corporate affairs at Exel, based in England. "I know we are a U.K.-listed organization, but with over 65 percent o f our revenues sourced from countries outside the U.K. -and now over 35 percent from the Americas—we are increasingly regarded as a global business."
Often, it's U.S.-based customers who are demanding global logistics coverage. Kulik says, from his perspective in the United States, customer needs have changed. "Far more customers are looking for 3PLs with global reach and global capabilities. They want the repeatability and consistency of a service that will yield the same results regardless of geography," he says.
Bruce Edwards, Exel's divisional chief executive for the Americas, agrees. "I'm finding that increasingly customers here are placing value on our international capability. Even if they're not able to take advantage of it at the moment, the sharp folks are realizing that in the future they probably will, so they're starting with us on some domestic projects with the idea that some day they're going to have to pull off something global," he says. Edwards points out that many large companies are getting more international simply through getting larger. "In the last two or three years,there have been at least 15 major mergers in our customer base," he reports. "But, whether it's the result of buying other companies or sourcing differently, they're going to be playing in a different sort of economy."
Third (party) watch
It's no wonder European 3PLs don't want to be pigeonholed as, well, European 3PLs. Logistics markets in Europe have become saturated and therefore not so profitable, forcing the providers to look abroad for business. "From a logistics point of view and an international 3PL point of view, Europe is the third most important market," says Richard Armstrong, founder of the consulting firm Armstrong & Associates. "It's really North America first, then … you go to the Asian markets. The only potential for profits in Europe is in what was behind the Iron Curtain."
"The market's more fragmented in Europe," says Jamie Ward, a business analyst specializing in logistics at analyst firm Datamonitor in London. "There are differences between countries and it's difficult to break down the barriers. That's still affecting things especially when you get into operations like pharmaceuticals where there are still regulatory boundaries between countries."
Although these 3PLs have been talking an international game for some time,it seems the talk is only just now becoming reality. All of them have made significant inroads into the U.S. market through acquisition in the last three years. TNT bought CTI Logistics. Kuehne & Nagel bought USCO Logistics. Exel bought F.X. Coughlin, among others. Deutsche Post bought Danzas/AEI and DHL. Assimilating those companies has taken time.
Competition,meanwhile, comes from home grown companies as well. Federal Express, United Parcel Service and Menlo Worldwide are fighting hard to become international freight and logistics service providers, the better to serve their already massive established customer base in the United States. According to Armstrong & Associates, Fed Ex now covers geographical areas that supply 99 percent of the world's gross domestic product and UPS has "nearly global coverage." Menlo, an operating company of CNF Corp., has logistics operations throughout North America and Latin America and in major points in the Pacific Rim and Europe. The financials also tell an interesting story. UPS reported revenue of $ 31.4 billion for 2002, of which $4.7 billion represented international revenue. That means its presence outside the United States is significant, but it is predominantly serving U.S.-based customers. The same thing goes for Fed Ex, which reported overall revenue of $20.1 billion, $4.2 billion of which counted as international revenue.
With the European 3PLs,however, the financial picture is quite different, Armstrong & Associates says. Deutsche Post World Network (DPWN), which does not break down the figures for DHL, had total revenue for 2002 of $37.3 billion, but $15.4 billion of that came from international revenue, much of it in the United States (these figures will increase if DPWN's intended purchase of the ground network of U.S.-based forwarder Airborne Express, announced in March, is allowed by U.S. regulators). TPG's case is even more extreme, with a total 2002 revenue of $11.2 billion, $10.4 billion of which came from overseas.
One of the challenges for the European 3PLs competing in the U.S. market has been weaving together a smooth information technology system from a patchwork of acquired legacy computer systems. UPS, FedEx and Menlo have particularly emphasized their IT capabilities, and the competition has recently begun to concentrate efforts on aligning their information systems.
TNT, for example, this April launched its TTS project ( "transformation through standardization") across the group. The idea is to standardize all information systems—a huge and expensive task, but one TNT takes very seriously as a competitive advantage. DHL has a similar initiative under way. Hans Toggweiler, chief executive and president of DHL Danzas Air & Ocean, says total computer integration between the companies under the DHL flag is a work in progress expected to be completed during the third quarter of this year.
Kuehne & Nagel is also pushing computer standards hard, both internally and for the IT services it provides to customers. Often customers insist on using their own sy stems, says Klaus Herms, chief executive officer of Kuehne & Nagel, based in Switzerland. "Only when you have standards can you do what we're trying to do—provide an integrated solution from the source to the retailer's shelf. Otherwise you have headaches with different interfacing and high cost," Herms says. Customers that want to go international need to learn the advantages of streamlined computer operations."In the track and trace business, with standards everything becomes easy," Herms says . "Increasingly, people understand it's to their advantage."
In the end, computer standards are merely a way of improving human contact so that internal department s servicing different geographies or industry verticals can compare notes, and customers can keep track of things more easily. DHL , which recently rebranded Danzas/AEI under the DHL name, in July created a "global customer solution group," which is designed to "act in the interest of the customer across all business units and geographies," says Toggweiler of DHL Danzas Air & Ocean, the Newark , N.J.—based subsidiary of DHL, which is in turn owned by Germany's Deutsche Post World Net . "This is not just about customer service, but setting the required service levels for a particular customer across the whole company," says Toggweiler. "We can't afford to have one business unit not service a customer as well as another unit. We want to look at how important a customer is to the company as a whole rather than to individual units."
This is part of a strategy being honed by the European 3PLs to use their American presence to explore possibilities for cross-selling bet ween different divisions. TNT, for example, has a cross-group logistics board that meets once every quarter and communicates informally by phone more often. The different divisions share information about specific customers for whom they 're doing work in one geographic or service area, and discuss ways they could help the same company by involving other divisions.
One for all?
Still, the European 3PLs are shy of pointing to any specific expanded contracts with international customers that clearly come from cross-selling between the old guard and U.S.-based acquisitions. DHL's Toggweiler admits that bringing together DHL and Danzas AEI under one name has implications currently limited to back-office functions and branding. And Kuehne & Nagel's Herms says currently the cross-selling opportunities tend to come between different service areas—for example, getting a customer who uses warehousing services originally won by USCO Logistics and selling it Kuehne & Nagel's freight forwarding service.
However, the future should see these companies selling more services in more countries, based on expanded presence in the United States. All agree China presents exciting opportunities, especia ly as the hub of a growing intra-Asian trade in which U.S.-based manufacturers are likely to take a stake. Meanwhile, India is becoming a major exporter to the United States and Europe. "We know where the market is going; it's a question of what will the customer purchase in each area and how we grow our market s," TNT's Kulik says. "We're all racing to gear up our U.S. operations and leverage the huge market available to us in the United States."